Executive Summary / Key Takeaways

• Altria Group, Inc. ($MO) is executing a strategic transformation, "Moving Beyond Smoking," by leveraging its highly profitable combustible tobacco core to fund significant investments in a diversified smoke-free portfolio.
• The company delivered strong financial performance in the first nine months of 2025, with adjusted diluted EPS growing 5.9% year-over-year, driven by robust pricing power in combustibles and emerging profitability in oral tobacco.
• Altria's innovative smoke-free products, particularly on! oral nicotine pouches and the forthcoming on! PLUS, are gaining traction and demonstrating technological differentiation, while the e-vapor segment faces challenges from illicit products and regulatory hurdles.
• The 2025 adjusted diluted EPS guidance of $5.37 to $5.45 reflects continued profitability, strategic reinvestment, and a cautious outlook on the dynamic regulatory and consumer environment.
• Significant risks include the pervasive illicit e-vapor market, ongoing regulatory uncertainty, and macroeconomic pressures on consumer spending, which necessitate sustained enforcement and timely FDA authorizations for smoke-free alternatives.

A Tobacco Titan's Transformation

Altria Group, Inc. stands at a pivotal juncture, evolving from a century-old tobacco powerhouse to a diversified nicotine and wellness company. Tracing its roots back to 1822 as Philip Morris, the company built an unparalleled U.S. market presence, notably with its iconic Marlboro brand. This rich history of brand building and market dominance now underpins its ambitious "Moving Beyond Smoking" vision. The strategy is clear: responsibly transition adult smokers to a smoke-free future, vigorously compete for existing smoke-free adult nicotine consumers, and explore new growth opportunities both domestically and internationally, beyond nicotine.

The industry landscape is dynamic, characterized by declining combustible cigarette volumes and a rapidly expanding smoke-free category. Over the past year, the estimated number of adult consumers in the e-vapor and oral tobacco categories swelled to approximately 28 million, nearly matching the adult smoker population. Smoke-free alternatives now represent about 45% of the total nicotine space, a five-percentage-point increase from the prior year. This shift, while presenting immense opportunity, is complicated by persistent macroeconomic headwinds, including inflationary pressures on consumer discretionary income, and a burgeoning illicit e-vapor market that undermines legitimate product development and public health objectives.

Technological Edge: Fueling the Smoke-Free Future

Altria's strategic pivot is heavily reliant on technological differentiation and innovation across its smoke-free portfolio. These advancements are not merely incremental improvements but represent a concerted effort to meet evolving consumer preferences and navigate a complex regulatory environment.

In the oral nicotine pouch segment, Helix Innovations, Altria's subsidiary, is at the forefront with its on! brand and the recently launched on! PLUS. The on! PLUS product features a proprietary "FLEX TECH pouch" designed to deliver superior comfort, nicotine delivery, and flavor satisfaction. Recent research comparing on! PLUS MINT against several leading competitive brands indicated that on! PLUS outperformed all tested rivals, achieving the highest purchase intent score primarily due to its pouch comfort. This tangible benefit is crucial for attracting and retaining consumers in a highly competitive market, contributing directly to on!'s strengthening brand equity and Helix's path to profitability. Helix is actively developing new on! PLUS flavors, such as Raspberry Lemon and Watermelon Mint, to cater to diverse consumer tastes and expand its market appeal.

The e-vapor segment, despite recent setbacks, also highlights Altria's commitment to technological advancement. While the U.S. International Trade Commission (ITC) issued an exclusion order and cease-and-desist orders against NJOY ACE, prohibiting its importation and sale effective March 31, 2025, Altria's teams have completed the product design of a modified NJOY ACE solution. This new design aims to address all four disputed patents, demonstrating a rapid engineering response to legal challenges. Furthermore, NJOY is developing the NJOY ACE 2 device, which incorporates Bluetooth connectivity for access restriction technology. This feature is designed to prevent underage use by authenticating the user before unlocking the device, directly addressing a critical regulatory concern and potentially offering a competitive advantage in a market scrutinized for youth access.

In heated tobacco, Altria's joint venture with JTI (JAPAY), Horizon Innovations LLC, is preparing to introduce Ploom to the U.S. market. Horizon filed a combined Premarket Tobacco Product Application (PMTA) and Modified Risk Tobacco Product Application (MRTPA) with the FDA for Ploom and Marlboro heated tobacco sticks in August 2025. This dual submission underscores the company's belief in the scientific evidence supporting these products as innovative alternatives. Additionally, Altria commenced a small-scale test launch of SWIC, a heated tobacco capsule product, through e-commerce in Great Britain in December 2024, gathering consumer insights to inform future strategies.

These technological initiatives are vital for Altria's long-term growth. They aim to create a portfolio of differentiated, FDA-authorized smoke-free products that can effectively compete with both legitimate and illicit alternatives, thereby securing future revenue streams and market share as traditional tobacco consumption declines.

Financial Resilience and Strategic Capital Allocation

Altria's financial performance in the first nine months of 2025 demonstrates the resilience of its core businesses and the strategic allocation of capital towards its smoke-free vision. Consolidated net revenues for the nine months ended September 30, 2025, were $17.433 billion, a 3.4% decrease from the prior year, primarily due to lower smokeable product volumes. However, adjusted net earnings for the same period increased 3.6% to $6.966 billion, translating to a 5.9% rise in adjusted diluted EPS, reaching $4.12. This growth was driven by higher Operating Companies Income (OCI) and a lower adjusted tax rate, partially offset by increased interest expenses.

The Smokeable Products segment remains a significant cash generator, with adjusted OCI increasing 2.5% to $8.421 billion for the nine months ended September 30, 2025. Adjusted OCI margins expanded impressively to 64.4%, up 2.7 percentage points from the prior year. This profitability was achieved despite a 10.6% decline in reported domestic cigarette shipment volume, largely due to robust pricing power and effective cost management. Marlboro, the segment's flagship brand, maintained its leadership in the premium segment, expanding its share by 0.3 percentage points to 59.6% in the third quarter of 2025. To address macroeconomic pressures on lower-income consumers, PM USA strategically expanded its discount brand, Basic, into approximately 30,000 targeted stores. This initiative successfully captured over half of the discount segment's 2.4 share point growth in Q3 2025, with limited impact on Marlboro. Middleton's cigar business also contributed positively, with shipment volume increasing 1.1% for the nine months.

The Oral Tobacco Products segment is a key growth driver in Altria's smoke-free transition. While total segment shipment volume decreased 5.2% for the nine months, primarily due to declines in moist smokeless tobacco (MST), the nicotine pouch category continues its rapid expansion. In Q3 2025, nicotine pouches grew to 55.7% of the U.S. oral tobacco category, an increase of 11.1 share points year-over-year. Helix's on! brand demonstrated resilience, with reported shipment volume growing nearly 1% in Q3 2025 to over 42 million cans and approximately 15% for the first nine months to 133 million cans. Crucially, on! maintained its retail share of 8.7% in the total oral tobacco category despite intense competitor promotional activity that saw average retail prices for the category decline 7% nationally. Helix's ability to increase on!'s retail price by approximately 1.5% in Q3 2025 while growing volume underscores its strengthening brand equity. This strong performance enabled Helix to achieve profitability in Q4 2024, ahead of its 2025 goal, and it is anticipated to be profitable for the full year 2025.

Altria maintains a strong balance sheet and a commitment to shareholder returns. Cash and cash equivalents stood at $3.472 billion as of September 30, 2025. The company's total long-term debt was $25.701 billion, with a debt-to-Consolidated EBITDA ratio of 2.0x, in line with its target.

Net cash provided by operating activities increased to $6.019 billion for the first nine months of 2025, up from $5.413 billion in 2024, primarily due to lower payments for State Settlement Agreements and litigation. Altria returned nearly $6 billion to shareholders in the first nine months of 2025, including $5.2 billion in dividends. The Board approved a 3.9% increase in the quarterly dividend rate to $1.06 per share in August 2025, marking the 60th increase in 56 years and reinforcing its progressive dividend goal targeting mid-single-digit growth annually through 2028. A $2 billion share repurchase program, authorized in January 2025 and expanded in October 2025, further demonstrates this commitment.

Competitive Dynamics and Strategic Positioning

Altria operates in a fiercely competitive environment, facing direct rivals like Philip Morris International, British American Tobacco , and Imperial Brands (IMBBY), as well as indirect competition from various nicotine replacement therapies and the burgeoning illicit e-vapor market.

Altria's primary competitive advantage lies in its deeply entrenched U.S. market presence and powerful brand equity, particularly with Marlboro cigarettes and Copenhagen moist smokeless tobacco. This allows for significant pricing power and strong customer loyalty, translating into robust margins and stable cash flow. While PM and BTI have broader international footprints and have been more aggressive in global smoke-free innovation, Altria's focused U.S. distribution network and regulatory expertise provide a distinct advantage in its home market. The company's revenue growth management (RGM) tools, honed over years in combustibles, are now being applied to smoke-free categories, enabling precise promotional investments and efficient market penetration.

However, Altria faces vulnerabilities, particularly in the e-vapor segment. The illicit flavored disposable e-vapor market, estimated to represent over 60% of the category, poses a significant competitive threat. These unauthorized products, often evading regulatory scrutiny, limit the growth potential for legitimate e-vapor offerings like NJOY. This dynamic has led Altria to reassess its 2028 smoke-free volume and revenue goals and NJOY-specific financial targets, acknowledging that the illicit market has grown beyond expectations. In contrast, competitors like PM (PM) and BTI (BTI), with their more diversified global portfolios and earlier entry into certain reduced-risk categories, may be better positioned to mitigate some of these specific market disruptions.

Altria is actively responding to these competitive pressures. The collaboration with KT&G , announced in September 2025, is a strategic move to expand into international innovative smoke-free products, including an ownership interest in Another Snus Factory (maker of LOOP Nicotine Pouch), and U.S. non-nicotine opportunities. This partnership aims to leverage KT&G's product expertise and Altria's commercial capabilities, diversifying its growth avenues beyond traditional tobacco and directly addressing the need for broader market reach and product innovation.

Outlook and Key Risks

Altria's 2025 full-year adjusted diluted EPS guidance is set at $5.37 to $5.45, representing a growth rate of 3.5% to 5% from a 2024 base of $5.19. This outlook is predicated on several key assumptions. Management anticipates a limited impact on combustible and e-vapor product volumes from enforcement efforts in the illicit e-vapor market, acknowledging that sustained and coordinated enforcement is crucial. The guidance also assumes that NJOY ACE will not return to the marketplace in 2025 due to the ITC orders.

The company plans to reinvest anticipated cost savings from its "Optimize and Accelerate" initiative, designed to enhance operational efficiency, back into its strategic growth areas. However, Altria expects EPS growth to moderate in the fourth quarter of 2025, primarily due to lapping the lower share count from the 2024 accelerated share repurchase program and the expiration of the Master Settlement Agreement (MSA) legal fund benefit.

Key risks to this outlook include the persistent macroeconomic pressures on adult tobacco consumers, particularly lower-income segments, which could lead to further down-trading to discount brands. Regulatory uncertainty remains a significant concern, with potential FDA actions such as product standards (e.g., maximum nicotine levels, flavor bans) or delays in product authorizations posing material threats. The ongoing proliferation of illicit e-vapor products continues to undermine the legitimate market and Altria's smoke-free ambitions. Furthermore, litigation risks, including patent infringement lawsuits and health-related claims, could result in significant financial liabilities. The non-cash goodwill impairment of $873 million for the e-vapor reporting unit in Q1 2025 and the $354 million impairment of the Skoal trademark in Q2 2024 highlight the sensitivity of asset valuations to market and regulatory shifts.

Conclusion

Altria Group, Inc. is navigating a complex but transformative period, demonstrating remarkable resilience in its core combustible business while strategically investing in a smoke-free future. The company's ability to generate robust profitability from its traditional brands, exemplified by Marlboro's premium segment leadership and expanding margins, provides the essential capital to fund its ambitious diversification efforts. Innovations like on! PLUS and the development of next-generation NJOY products, coupled with strategic partnerships like the one with KT&G (KTNGF), underscore Altria's commitment to technological leadership and market expansion in growing smoke-free and non-nicotine categories.

While significant headwinds persist, particularly from the pervasive illicit e-vapor market and an unpredictable regulatory environment, Altria's disciplined financial management, strong shareholder return policy, and clear strategic vision position it for long-term value creation. The company's mid-single-digit EPS CAGR target through 2028, supported by its operational efficiencies and a growing portfolio of differentiated smoke-free products, suggests a compelling investment thesis for those seeking a high-yield income stock with a clear path to future relevance in a rapidly evolving consumer landscape.